Key Headline:

 Focus on Trade: Will tariffs be imposed on Canada and Mexico? All eyes on the decision.

 Monetary Policy Shift: The ECB cuts interest rates by 25 basis points.

Recap

·      The USD was the biggest loser yesterday as markets trimmed their long positions on the currency. Traders perceived the ECB meeting as less dovish, leading to a shift in sentiment. The ECB cut interest rates by 25bps, in line with expectations, with a unanimous decision among policymakers, reinforcing confidence that inflation will return to target. Forward guidance remained unchanged, as the ECB continues its meeting-by-meeting approach.

·      Meanwhile, the JPY was the strongest performer, following Deputy Governor Ryozo Himino’s remarks that the Bank of Japan will continue raising interest rates if its economic and inflation outlooks materialize.

·      In the U.S., Q4 GDP fell short of expectations, coming in at 2.3% vs. 2.6% expected. Over the same period, core PCE inflation rose from 2.2% to 2.5%, in line with forecasts.

Today’s Rates

Today's Interbank Rates at 09:57 am against GBP movement.

GBP>EUR – 1.1966

GBP>USD – 1.2425

EUR>GBP – 0.8356

EUR>USD – 1.0382

GBP>CAD – 1.7995

GBP>AUD – 1.9974

GBP>SEK – 13.726

GBP>CHF – 1.1311

GBP>PLN – 5.0485

GBP>AED – 4.5625

GBP>HKD – 9.6826

GBP>ZAR – 23.150

Today’s Key Takeaways

o  On the data front, French January inflation came in lower than expected this morning, with Germany’s figures set to be released later today. Any signs of sticky inflation could lead markets to scale back ECB rate cut expectations, which would be EUR positive. Similarly, the U.S. core PCE data will be closely watched, though with Q4 GDP aligning with forecasts, significant deviations in December’s figure are unlikely.

o  For USD volatility, the focus remains on whether the Trump administration follows through with the 25% tariffs on Canada and Mexico mentioned last week. Overnight, Trump reiterated his tariff plans, weakening both the CAD and MXN. While the official target date is February 1, 2025, markets will be closely monitoring any further developments.

o  Next Monday’s open will be one to watch—have a great weekend, everyone!

31st January 2025

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